Posted 2 years ago on Jan. 3, 2013, 8:55 p.m. EST by bensdad
(8977)
This content is user submitted and not an official statement

The debt ceiling has nothing to do with spending money - it has to do with the US government paying what it is legally obligated to pay because the House & Senate & President “contracted” to pay its bills.

With the national debt at its highest point in 50 years compared with the size of the U.S. economy, the debate about the ceiling has become entwined by th e Republicans in the larger issue about slashing the budget. The budget debate is shaping up around trying to balance two perhaps equally unpopular remedies: sharp cuts to popular government-funded programs and major tax increases.
Republican lawmakers say that if they raise the limit they need a commitment from the White House for more spending cuts. The Obama administration has resisted the idea of including spending caps or other budget-process reforms in legislation to raise the debit ceiling, arguing that ensuring the government’s solvency is too important to be held hostage to any other issues.

What happens if we don’t raise the debt ceiling but continue to pay interest on our bonds? This is an option known as “prioritization.” The Bipartisan Policy Center released a report attempting to think through how this would work in practice, as it has never been attempted before.
The raw numbers are chilling: In the August 2011 debt ceiling debate, the federal government would have to cut expenditures by about $134 billion, or 10 percent of the month’s GDP. If it chose, for instance, to fund ONLY Medicare, Medicaid, Social Security, supplies for the troops and interest on our bonds, it would have to stop funding every other part of the federal government. The drop in demand, when coupled with the turmoil in the markets and the general financial uncertainty, would undoubtedly throw the economy into a depression. Also keep in mind that we have to roll over $500 billion in debt , and if there was any uncertainty about how we were going to pay our bills, it is not clear we could find buyers for our debt at anything less than an exorbitant rate. In this way, “prioritization” could actually increase the deficit by billions.

What happens if we stop paying the interest on our debt? This is too scary to consider. Treasury securities sit at the base of the entire global financial system. They are considered so safe that the interest rate on Treasuries is called the “riskless rate of return,” as the market assumes there is no chance of default under any circumstances. Almost all other types of debt — mortgages, credit card, auto loans, business loans, hospital bonds, etc. — are yoked to Treasuries. Almost all major financial players hold substantial portfolios of Treasuries or Treasury-related debt in order to buffer themselves against financial shocks. Consider that the 2007 financial crisis was caused by the market realizing it had to reassess the risk of bonds based on ONLY subprime mortgages. If the market has to reassess the risk of US Treasuries, the resulting financial crisis will be beyond anything we’ve ever seen in this country or any other.

In 2012, the debt ceiling debate – that was raised at the last minute - caused our debt rating to be lowered – and interest rates we paid on our treasuries from 1.4% to 1.7% - an increase of 20%. If we actually do not raise the ceiling this rate we pay would be 5%+. Imagine what would happen to ALL variable rate loans!!!

In 1917, the debt ceiling was created during World War I. Over time, the debt ceiling has been raised every time the United States comes close to hitting the limit. By hitting the limit and missing an interest payment to bondholders, the United States would be in default, lowering its credit rating and increasing the cost of its debt.

62 Comments

Reality can be defined as the 'norms' that your community agrees on.... Do you believe in witches and demons? How about 'trickle down economics'? Of course some 'realities' work better than others. The laws of nature tend to favor 'actual reality' over the ones that only exist in certain peoples' twisted world view, but over the short term utter nonsense can seem real, and even drive actual 'reality' to places we can't imagine.

We're in one of those places in time where 'reality' is being defined by consensus. We have a Federal budget in the $4 trillion range, a number that seems like magic to people who count only on their digits (fingers and toes). To be fair, it's not a number you can actually 'think' about. You have to use certain tricks of the mind to make it into a useful concept, or you can just use accounting....

We are creating about $1 trillion a year in new Federal debt, this freaks out the tea baggers. They didn't notice when Bush was creating debt at twice that rate, or when Reagan was doing it at twice that rate in today's dollars. You see it's all about 'creating' reality. Numbers are funny that way.

The Republicans are trying to create the 'reality' where where we simply default on the debt they created. If they can really make this 'happen', then civilization as we know it will end. You see the 'debt ceiling' crisis isn't about paying the 'bills', it's about paying the interest on Ronald Reagan's debt. He ran it up from less than a trillion dollars to 4 trillion while he was President. That would be 12 trillion in today's dollars. Yeah..... when the right makes a big deal about Obama having a $16 trillion dollar debt, it's really Ronald Reagan's debt that they are talking about. That 'welfare' state that they obsess about? The interest on Reagan's debt comes in at twice what that costs every year, has been for 30 years.

Obama has cut the operating deficit to the point that if the economy were to recover we would be pretty close to running a surplus. The question is whether the economy will be allowed to recover. A default on Ronald Reagan's debt would make that unlikely, that's why the billionaires are trying to make that a 'reality'.

The good news is that Democrats in Washington seem to be catching onto 'reality'. Nancy Pelosi is talking about the 14th amendment, Barack Obama has said that Congress cannot refuse to pay for the spending they've authorized. This is 'reality' talk.

If you haven't heard about the 14th amendment, one of things in it says is that the debt of the United States cannot be questioned no matter how it was incurred. Basically, if Congress says that the Executive Branch should spend the money, they can't refuse to pay the bills later. That amendment was written to cover the debts of the Civil War, but has no limitation. The debts run up for every war since are similarly covered, The Spanish American War, WWI, WWII, Korea, Vietnam, Grenada, Panama, Iraq, Afghanistan, Iraq again, it includes every real, and every phony war that we've ever been involved in. That would also include the war against the middle class by the rich.

We've always paid our debts, going all the way back to the debts run up by the Continental Congress to pay for the exploits of George Washington. If you haven't heard of him, his likeness is on the dollar and the quarter. He was a liberal, that's something else you aren't supposed to know in this 'reality'.

That 'reality' is that we don't have a 'debt problem', we have a revenue problem. Corporations are hoarding 5 trillion in cash, rich people are hoarding more trillions in offshore accounts.

In another area where reality is being redefined, the the average temperature in the US for 2012 was one degree above the previous all time record, and three degrees above the average year in the 20th century. In Australia, scientists have had to add a new range of colors to the weather maps, shades of purple now define temperatures above 130 degrees. Back in the US, Kansas had the distinction of experiencing summer temperatures higher than the normal temperatures of Death Valley. Not in the 'purple' range yet, but the century is young.

In the end we will have the 'reality' that we choose as a community. Have you decided? www.prairie2.com

That has nothing to do with the debt ceiling.
However, if we don't raise the debt ceiling, the world economy will collapse -
So if your only issue is bombs for Africa, and you dont care if YOUR interest rates go up 25% & half of your friends and family lose their jobs and you dont want to fund the EPA & NRC & SEC & FDA - this is one way to achieve your one goal
Medicaid is NOT self funded
I do not think Medicare is either

Well, we get taxed on it in our paychecks. I've said that raising the 1.45% to something a bit higher is probably needed. Its not 100% funded, but there are taxes going into it, so we need to figure out what that 1.45% is total, subtract it from total medicare costs, and then divide it by the 144m people who are working by 52 weeks to figure out how much everyone would have to pay to make it an even steven.

So no numbers? So its just more rambling, nothing that can be used for an actual plan? Thats your plan. Now organize it. Then implement it. Then create the timetables and benchmarks. Basic levels of political organizing.

You've been on here for an entire year. Its about time you move past the first level.

What's wrong with taxing the rich? They have made record profits with all the Bush-Cheney Laissez Faire governing policies, give-aways and tax cuts, isn't it only right that they contribute tax revenue to the country that made it possible? Especially in this time of need?

You can tax the rich and play class warfare all you want but confiscating 100% of all their money will not put a dent in the $23+trillion dollar debt nightmare that your buddy Obama is in the process of creating.

You think small when our problems are already too big for these ridiculous pseudo solutions.

He's a classic example of the loyal unquestioning Nazi, which was also a RW Cult just like today's RepubliCon Cult. But let's not ban him, he offers the political newbies, who I have heard sometimes visit here, an abundance of deranged RW zombie beliefs and talking points. Test him with a question that require critical analysis, he attacks!

Why aren't we directly lending people money at .01 percent interest instead of just the banks? Why do we continue to support a monetary system that gives unlimited resources to the banks and even fraudulent banks yet nothing for the people?

The Federal Reserve creates money out of nothing... gives it to the banks... the banks keep it on deposit... gain interest... pays huge CEO bonuses... fat cat city... all while the rest of America falls apart.

It's time for a change in monetary policy. We need a system that works for the 99% and not just the 1% that allow the banks to decide our economic destiny.

"Is that legal?" - reforming monetary policy to adapt to this new system would be legal.

The system is set up to GIVE wall street profits. The profits are made out of money. So yes the Fed gives Wall Street money. Where did they get the trillions from? The new trillions they have did not exist in 1900.

If you think the Federal Reserve's relationship with Wall Street is legit, you should try reading about it. Our monetary policy has been turned into a scam setup and manipulated by Wall Street for Wall Street's profits. And as Dennis Kucinich said "all while the rest of America falls apart. It's time for a fundamental change in monetary policy. We shouldn't be stuck in this debt based economic system for Wall Street."

What I am getting at - if the system is doing legal things, and you don't like it - vote for people who will change it - like Kucinich.
But many here rant about what the fed does - is there anything the fed does that is ILLEGAL ?
If not - tell people to VOTE to change things.